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Monday, May 15, 2006

More Bad Economic News For Russia

The Moscow Times (via Reuters) reports that "the ruble broke through 27 to the dollar on Friday to reach its highest level since January 2000 as the U.S. currency slumped to a one-year low against the euro. Rubles for 'tomorrow' delivery rose 0.6 percent on the MICEX exchange to trade at 26.9275 to the dollar, leading dealers to speculate that the Central Bank may step into the market to stem its rise."Many Russians, particularly the lunatic nationalist fringe and the crazed Russophiles, are foolish enough to think that a strong ruble is good news for Russia. But in fact, the result of a strong ruble is that foreign goods become cheaper for Russians to buy and Russian goods become more expensive for foreigners to buy. In other words, jobs are created abroad and snuffed out in Russia. Fortunately for Russians, at least the higher levels of government understand this to some extent. The report continues: "We are now exactly at the level where the Central Bank may support the dollar -- but that depends on whether or not the dual currency basket changes from where it has been in recent days," said one foreign-exchange trader.

Of couse, that doesn't mean that a weak ruble would be good for Russia, because a weak ruble means hyperinflation on the cost of everything Russia buys from the outside world, which is considerable since Russia has virtually no consumer manufacturing base of its own.

Sounds like Russia is between a камень and a твердoe место, doesn't it?

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